Edenbrook Capital increased its stake in Frequency Electronics (FEIM)
Key Summary: Frequency Electronics ($83M market cap) faced shareholder activism from Privet Fund and Edenbrook Capital over governance and strategic opportunities. Privet Fund (9.7% stake) secured two board seats in 2016 but later exited, reducing its stake to 4.9% by 2018 due to governance disagreements. Edenbrook Capital increased its stake from 5.2% in 2016 to 18.92% by 2020, advocating for cost savings, monetization, and maximizing shareholder value.
Market Cap: $83 million | Frequency Electronics is a provider of precision time and frequency technology.
(i) Privet Fund
- On June 4, 2015, the company agreed to appoint one of two director nominees submitted by Privet if and when the candidate is submitted. Source (But no one from Privet Fund was appointed to the Board. Source: DEF 14A)
- On July 5, 2016, Privet (9.7%) delivered a letter to the company's CEO and the Board, expressing its belief that the company is deeply undervalued and that significant opportunities exist to create value for the benefit of all shareholders based on actions within the control of management and the Board. Privet questioned the independence and succession plan of the Board, whose members currently have an average tenure at the company of 27 years and a median age of 80. Privet also expressed its belief that a reconstituted Board is required to drive shareholder value creation. To that end, it nominated four candidates for election to the Board at the 2016 annual meeting of stockholders. Source
- On September 13, 2016, Privet Fund entered into a settlement agreement with the company, pursuant to which the company appointed two candidates of Privet Fund to the Board.
- On September 19, 2016, Privet Fund increased its stake to 12%.
- On September 12, 2017, Levenson, Principal and Portfolio Manager of Privet Fund, resigned from the Board of Directors of the company due to disagreements regarding certain operational decisions and corporate governance practices.
- On May 29, 2018, Privet Fund decreased its stake to 4.9%.
(ii) Edenbrook Capital LLC
- On March 18, 2016, Edenbrook Capital disclosed a 5.2% stake and recommended that the Board of Directors form a Special Committee to begin the process of reviewing strategic alternatives in the interest of maximizing long-term shareholder value. Source
- On December 22, 2016, Edenbrook Capital increased its stake to 7.68%, stating that recent data points suggest the gap between price and value has widened considerably. Further, it stated that the stock continues to trade at a price below the book value per share, suggesting that the market places no value on the company's business prospects. Edenbrook noted that a basket of comparable companies trades on average at approximately 3x book value, according to FactSet data, which is more than triple the company's current valuation. Additionally, at the recent annual meeting in November, company management mentioned $5 million in cost savings to be implemented during the current fiscal year, ending in April 2017. FactSet data shows that a basket of comparable companies trades at an average of over 20x EBITDA. Edenbrook Capital estimates that at half that industry multiple, or 10x, those $5 million in savings would be worth an additional $50 million, or over $5.70 per share more than 50% above the current stock price. Furthermore, on its December earnings call, company management described plans for potentially monetizing the company's European operations, which would further improve profitability and the balance sheet.
- On November 8, 2017, Edenbrook Capital increased its stake to 16.2%.
- On December 17, 2019, Edenbrook Capital increased its stake to 17.41%.
- On April 6, 2020, Edenbrook Capital increased its stake to 18.92%.
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